FTC Solar, Inc.

We have incurred cumulative losses since inception and have a history of cash outflows from operations, inclusive of $34.7 million in cash utilized for our operating activities during the year ended December 31, 2024. As of December 31, 2024, we had $11.2 million of cash on hand and $27.1 million of working capital.

As of December 31, 2024, in addition to our cash on hand and working capital, we had approximately $64.9 million of remaining capacity available for future sales of our common stock under our ATM program as defined and described further in Note 16, "Stockholders' equity" in Part II, Item 8 of this Annual Report. Our ability to use the ATM program may be constrained by the size of our non-affiliate market capitalization, our trading volume and other factors, and there can be no assurance regarding the price at which we will be able to sell such shares, and any sales of our common stock under the ATM program may be at prices that result in additional dilution to our existing stockholders.

Based on our cash position at December 31, 2024 and our recent operating losses, we have concluded that substantial doubt exists as to our ability to continue as a going concern within the next year.

At December 31, 2024, we had a contractual obligation that could require us to make additional capital contributions of up to $0.8 million to Alpha Steel. In addition, as described further in Note 11, "Equity method investment" in Part II, Item 8 of this Annual Report, pursuant to an equipment supply agreement we have with Alpha Steel, we have committed to placing a minimum level of purchase orders for torque tubes with Alpha Steel during the period from January 1, 2024 to June 30, 2025, with such volume commitments increasing in each of the next two annual periods. In the event we fail to meet our minimum required purchase commitments in any period, we would contractually be required to make a cash payment for the net profit attributable to any unfilled requirements, calculated as specified in the agreement, in an amount not to exceed $4.0 million in the aggregate. As of December 31, 2024, we had met approximately 19% of our required purchase commitments for the period ending June 30, 2025.

On December 22, 2023, we received notification from Nasdaq that we were not in compliance with the requirement to maintain a minimum closing bid price of $1.00 per share on our common stock, and had been for at least 30 consecutive business days.

In order to address our noncompliance with the minimum bid price requirement, we completed the Reverse Stock Split, effective November 29, 2024. On December 17, 2024, we were notified by Nasdaq that, after having maintained a closing bid price of $1.00 or greater for 10 consecutive business days from December 2, 2024, to December 16, 2024, we had regained compliance with Listing Rule 5550(a)(2).

In addition to the Reverse Stock Split, during the fourth quarter of 2024, we also (i) entered into an agreement with an institutional investor to purchase $15.0 million in principal amount of our Senior Notes and Warrants, receiving proceeds of nearly $14.6 million, net of lender fees, (ii) sold our Atlas software platform, receiving proceeds of $0.9 million, (iii) received $4.7 million in additional contingent earnout payments from our investment in Dimension that we sold in 2021, which was in addition to $4.1 million received earlier in 2024, and (iv) reduced our headcount by approximately 12% in an effort to adjust our cost structure to meet our current needs. Also, during the first quarter of 2025, we received a contingent earnout payment from Dimension totaling $3.2 million.

We elected, pursuant to the Senior Notes, for interest payable under the Senior Notes to be added to the principal amount on the applicable interest payment dates of the last day of June and December of each year, and we anticipate that we will make similar elections in the future. However, we may elect to make such interest payments in cash instead. The obligations under the Senior Notes are secured by a lien on our assets and the assets of our subsidiaries.

Our ability to meet our liquidity needs over the next year is dependent upon (i) our cash on hand (subject to a quarter-end minimum balance covenant of $5 million under the terms of our Senior Notes offering), (ii) our expectations of increased project activity and cash flow during the twelve-month period following issuance of our consolidated financial statements, (iii) expected proceeds of up to $10 million from an additional private placement of debt based on a term sheet executed on March 4, 2025, and (iv) utilization, as appropriate, of the capacity available for future sales of our common stock under the ATM program, which may be constrained by the size of our non-affiliate market capitalization, our trading volume and other factors. In addition, we continue to remain focused on implementing additional cost savings steps, which could impact, among other things, location of our headcount and the level of services currently provided by third parties, and we continue to evaluate further opportunities to obtain additional financing, although the ability to ultimately obtain such additional financing is not entirely within our control. Additional information regarding the term sheet described above may be found in Note 23, "Subsequent events" in Part II, Item 8 of this Annual Report.

Statements of cash flows

Our cash flows from operating, investing and financing activities were as follows:

Operating activities

During the year ended December 31, 2024, we used approximately $34.2 million of cash to fund a portion of our expenditures for personnel and facilities, legal and professional fees, insurance, research and development and various other operating activities. This compares to approximately $27.0 million used in 2023 to fund similar expenditures.

We also used approximately $0.5 million of cash in 2024 for working capital and other items, which were primarily impacted by the timing of customer receipts and vendor payments, inventory utilization and lower activity levels. In 2023, we used $25.7 million of cash for increases in working capital and other items, primarily due to timing of customer receipts and payments and higher project activity levels, net of inventory utilization.

Our working capital decreased by approximately $26.8 million from $53.8 million at December 31, 2023, to $27.1 million at December 31, 2024, as cash was used to fund various operating and capital expenditures, as well as making additional investments in Alpha Steel. Working capital was also impacted by lower activity levels and the timing of customer collections and vendor payments. This was partially offset by cash proceeds received from the issuance of our Senior Notes and the sale of our Atlas software platform.

Investing activities

During the year ended December 31, 2024, we received $8.8 million of contingent earnout payments in connection with the June 2021 sale of our equity interest in Dimension and we received $0.9 million in proceeds from the December 2024 sale of our Atlas software platform. We also made additional equity investments of $1.8 million in Alpha Steel. Pursuant to our agreement with Alpha Steel, we could be required to make up to $0.8 million in future additional capital contributions if needed for expanded production. Finally, we spent approximately $1.6 million in 2024 primarily for tooling, leasehold improvements, software, and new computers and IT equipment.

During the year ended December 31, 2023, we made an initial investment in Alpha Steel of $0.9 million and paid approximately $0.8 million in cash for new lab equipment to be used for product testing, as well as new tooling, computers and IT equipment. We also received net proceeds of $1.3 million in contingent earnout and project escrow release payments from the sale of our equity investment in Dimension.

Financing activities

During the year ended December 31, 2024, we sold $15.0 million principal amount of Senior Notes for proceeds, net of lender fees withheld, of approximately $14.6 million. We also paid third-party financing costs of approximately $0.1 million associated with the sale of the Senior Notes.

During the year ended December 31, 2023, we began selling newly issued shares of our common stock in various daily transactions under our ATM program, receiving cash proceeds of $34.0 million. Offering costs associated with the sale of our common stock totaled $0.3 million. We also received proceeds from exercise of stock options during 2023 of $0.2 million

Senior notes and warrants

On December 4, 2024, we sold $15.0 million in principal amount of Senior Notes and Warrants to an Investor pursuant to the Purchase Agreement for proceeds, net of lender fees, approximately $14.6 million.

The Senior Notes bear interest to be paid in cash at the rate of 11% per annum; provided however, that the Company may, at its option, following notice to the Investor, instead increase the outstanding principal amount of the Senior Notes by the amount of such interest at the rate of 13% per annum ("paid-in-kind interest"). Interest is payable semi-annually on the final business day in June and on the final business day in December. We currently are utilizing the paid-in-kind interest option and have recognized additional paid-in-kind interest of $0.1 million as of December 31, 2024, which has been added to the principal amount of our Senior Notes.

To secure our obligations under the Purchase Agreement, the Company and its subsidiaries have granted a security interest over substantially all of their assets to the collateral agent for the benefit of the Investor, pursuant to a security and pledge agreement. At any time prior to December 4, 2026, the Company may redeem some or all of the Senior Notes at a “make-whole” redemption price equal to the sum of undiscounted interest payments that would have otherwise been payable through an additional 12 months following the redemption. At any time on or after December 4, 2026, the Company may redeem some or all of the Senior Notes at a “make-whole” redemption price equal to the sum of undiscounted interest payments that would have otherwise been payable through the earlier of (i) the maturity date of the Senior Notes and (ii) an additional three months following the redemption. The Senior Notes mature on December 4, 2029. Certain of the Company’s subsidiaries each guaranteed the Company’s obligations under the Senior Notes.

In addition to limitations on certain financial activities, including payment of dividends, and other customary covenants, during the period the Senior Notes are outstanding, we will be required to (i) maintain a minimum of $5.0 million of unrestricted cash on the last calendar day of each quarter, (ii) have annual revenue of $100 million for 2025 and $200 million for subsequent years and (iii) have annual EBITDA, as defined in the Purchase Agreement, of at least $25 million starting in 2026. A breach of these financial covenants, or the other covenants included in the Senior Notes, would constitute an event of default under the Senior Notes, resulting in the entire unpaid principal and accrued interest under the Senior Notes becoming due and payable, and enable the Investor to foreclose on our assets if we are not able to repay the outstanding obligations.

The Purchase Agreement also contains certain standard terms that could result in the Senior Notes becoming immediately due and payable before maturity, including an event of default with respect to the terms, covenants and financial covenants or a material adverse effect involving our business, properties, assets, liabilities, operations and financial condition, or otherwise, or our prospects that could adversely affect our ability to meet our obligations under the Purchase Agreement.

The Warrants, which were valued at $5.2 million upon issuance and are included as a long-term liability in our Consolidated Balance Sheet, are exercisable for 10 years and allow for the purchase of an aggregate of up to 1,750,000 (on a post-split basis) shares of our common stock at an exercise price of $0.10 per share. A member of our Board of Directors, Pablo Barahona, invested $500,000 in the Investor, which was used to finance the purchase price of the Offering.

Revolving credit facility

Our Credit Facility, entered into in 2021 with various lenders, including Barclays Bank PLC, as issuing lender, the swingline lender and as administrative agent, expired unused on April 30, 2024.

Critical Accounting Estimates

Preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported revenue and expenses during the period. Estimates are used for calculating the measure of progress of our solar tracker projects and deriving the standalone selling prices of the individual performance obligations when determining amounts to recognize for revenue, estimating allowances for credit losses and slow-moving and obsolete inventory, determining useful lives of long-lived assets and the estimated fair value of those assets for impairment assessments, and estimating the fair value of investments, warrants, stock compensation awards, warranty liabilities and federal and state taxes, including tax valuation allowances, as well as other contingencies. We base our estimates on historical experience and anticipated results, trends, and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. Actual results could differ from those estimates due to risks and uncertainties. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information, see Note 2 "Summary of significant accounting policies" included in our consolidated financial statements in Part II, Item 8 of this Annual Report.

Revenue recognition

Our accounting policy on revenue recognition may be found in Note 2, "Summary of significant accounting policies" in our consolidated financial statements included in Part II, Item 8 of this Annual Report.

The timing and amounts of revenue and cost of revenue recognition, as well as recording of related receivables and deferred revenue, is highly dependent on our identification of performance obligations in each contract and our estimates by contract of total project cost and our progress toward project completion as of each period end. Certain estimates are subject to factors outside of our control that may impact our suppliers and the global supply chain. As an example, regulatory, tariff and import concerns such as those caused by the UFLPA and the Solar Circumvention Investigation and delays customers have experienced with permitting and securing interconnection agreements have in the past, and may continue to, affect our ability to obtain project materials or may delay the timing of customer project activity which has had in the past, and may continue to have, an adverse impact on our results of operations, including the expected timing of the recognition of revenue needed to cover our relatively fixed overhead costs. We base our estimates on the best information available at each period end, but future events and their effects cannot be determined with certainty, and actual results could differ materially from our assumptions and estimates.

Accounts receivable, net

Our accounting policy relating to our accounts receivable and allowance for credit losses may be found in Note 2, "Summary of significant accounting policies" in our consolidated financial statements included in Part II, Item 8 of this Annual Report.

We adopted Accounting Standard Update ("ASU") No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments effective January 1, 2023.

The allowance for credit losses is based on the lifetime expected credit loss of our customer accounts. To assess the lifetime expected credit loss, we utilize a loss rate method that takes into consideration historical experience and certain other factors, as appropriate, such as credit quality, current economic or other conditions and changes in project status that may affect a customer's ability to pay. This method accelerates the recognition of expected credit losses as compared to the incurred loss model used prior to 2023 and may result in material differences between our estimates and actual collection results. We may also have greater fluctuations in our credit loss expense over time based on changes in our historical experience or changes in estimates of future economic conditions, or other factors, which may not adequately reflect future actual customer payment activity. As an example, our credit loss expense for the year ended December 31, 2024, totaled approximately $2.1 million compared to $7.4 million during the year ended December 31, 2023. The change was due primarily to our collectibility assessments at each period end involving certain specific customers.

Warranty

Our accounting policy relating to our warranty obligations may be found in Note 2, "Summary of significant accounting policies" in our consolidated financial statements included in Part II, Item 8 of this Annual Report.

We base our estimated warranty obligations on available industry data relating to the nature and frequency of product failure rates and, where possible, on our historical experience, to make estimates of costs to address future claims. These estimates are inherently uncertain given our relatively short history of sales in relation to the warranty terms, and changes to our historical or projected warranty experience or fluctuations in available industry data may result in material changes to our warranty reserves in the future. Additionally, we make estimates of what costs we believe will be recoverable from the manufacturers of our products that we use to offset our obligations to our customers.

While we periodically monitor our warranty activities and claims, if actual costs incurred were to be different from our estimates, we would recognize adjustments to our warranty reserves in the period in which those differences arise or are identified. Such adjustments could be material to our results of operations in the period the adjustments are made.

Costs recognized for warranties issued during each of the two years ended December 31, 2024, as well as other activity in our warranty accruals, may be found in Note 12, "Accrued expenses and other current liabilities" in our consolidated financial statements included in Part II, Item 8 of this Annual Report.

Stock-based compensation and warrants

Our accounting policy relating to stock-based compensation may be found in Note 2, "Summary of significant accounting policies" in our consolidated financial statements included in Part II, Item 8 of this Annual Report.

The Black-Scholes model and Monte Carlo simulations rely on various assumptions, in addition to the exercise price of the option and the value of our common stock on the date of grant. These assumptions include:

Expected Term: The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is calculated as the average of the option vesting and contractual terms, based on the simplified method, when we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for options granted. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options. The contractual life of an option may be up to 10 years. Monte Carlo simulations estimate the derived service period of awards with market conditions.

Expected Volatility: Since the Company did not have a trading history of its common stock prior to our IPO and since such trading history subsequent to our IPO has been limited and may be less than the expected term of an award, the expected volatility may be derived from (i) our actual historical stock volatility with respect to certain more recent awards or (ii) the average historical stock volatilities of several public companies within the Company’s industry that it considers to be comparable to its business over a period equivalent to the expected term of the stock option grants or (iii) a combination of each method such as with recent awards granted with market conditions.

Risk-Free-Interest-Rate: The Company bases the risk-free interest rate on the implied yield available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term.

Expected Dividend: The Company has not issued any dividends in its history and does not expect to issue dividends over the life of the options and, therefore, has estimated the dividend yield to be zero.

We use Monte Carlo simulations for certain awards granted with market conditions which provide an estimated average present value for each award based on a simulation assuming Geometric Brownian Motion in a risk-neutral framework using up to 250,000 simulation paths to determine the derived service and vesting periods.

Our use of the simplified method for estimating the expected outstanding term our options may differ significantly from future actual exercise patterns of our option holders. Estimates of the outstanding term of our options that are less than the actual exercise patterns of our option holders, may result in lower recognized expense than required. Alternatively, our recognized expense may be higher than required if our option holders exercise their options sooner than our estimates project.

Similarly, our use of a volatility estimate based on historical stock volatilities of the Company, as well as a peer group of other public companies, may differ significantly from the actual future volatility of our stock over the term options are held. Higher estimated volatility compared to actual results may result in higher recognized expense than required and alternatively, lower expected volatility compared to actual results may result in lower recognized expense than required.

We also utilize the Black-Scholes model to estimate the fair value of our outstanding Warrants at each period end. Similar to our options, differences in our estimates of future expected exercise patterns of our Warrant holders, or our estimates of volatility, may impact our future estimates of the fair value of our Warrants at each period end, which could have a material impact on our future consolidated results of operations.

We also account for option and RSU forfeitures as they occur. This accounting policy may result in fluctuations in our recognized stock-based compensation expense each period, which could be material depending on the level of forfeitures in each period.

Impairment

Our accounting policies relating to impairment of our long-lived assets held for use, including intangible assets, and of goodwill may be found in Note 2, "Summary of significant accounting policies" in our consolidated financial statements included in Part II, Item 8 of this Annual Report.

Key judgments and assumptions involving our assessment of impairment of our long-lived and intangible assets, as well as goodwill, may include:

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Determination of whether events or changes in circumstances indicate that the carrying value of our long-lived and intangible assets or goodwill might be impaired. Such factors to consider may include an evaluation of changes in the business or regulatory climate, market conditions or other events impacting our operations;

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Estimating future cash flows of our long-lived assets or asset groups and intangible assets, which may involve assumptions as to the lowest level of our assets at which cash flows are generated, including future growth and risk-adjusted discount rates, as well as a terminal growth rate or value and future market conditions;

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Estimates of assumptions a market participant would use in determining the fair value of the affected long-lived and intangible assets or asset groups; and

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Estimating the fair value of the consolidated company.

In estimating the fair value of the consolidated company, we used our market capitalization based on our closing stock price on the Nasdaq at December 31, 2024. Our daily closing stock price is affected by numerous factors, some of which may not directly involve the operations of the company, and, historically, has demonstrated high volatility.

Other than writing off certain prepaid costs relating to a contract termination in 2023 with a related party and deferred costs relating to uncompleted transactions, we did not identify any impairments of our long-lived assets, intangible assets or goodwill during the two-year period ended December 31, 2024.

JOBS Act accounting election

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We elected to use the allowed extended transition period for adopting new or revised accounting standards.

Non-GAAP Financial Measures

Adjusted EBITDA, adjusted net loss and adjusted earnings per share (“EPS”)

We utilize Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS as supplemental measures of our performance. We define Adjusted EBITDA as net loss plus (i) provision for (benefit from) income taxes, (ii) interest expense, net, (iii) depreciation expense, (iv) amortization of intangibles, (v) stock-based compensation, (vi) loss from changes in fair value of our warrant liability, and (vii) Chief Executive Officer ("CEO") transition costs, non-routine legal fees, costs associated with the Reverse Stock Split, severance and certain other costs (credits). We also deduct the contingent gains arising from earnout payments and project escrow releases relating to the disposal of our investment in an unconsolidated subsidiary and gains from changes in fair value of our warrant liability from net loss in arriving at Adjusted EBITDA. We define Adjusted Net Loss as net loss plus (i) amortization of debt discount and issue costs and intangibles, (ii) stock-based compensation, (iii) loss from changes in fair value of our warrant liability, (iv) CEO transition costs, non-routine legal fees, costs associated with the Reverse Stock Split, severance and certain other costs (credits), and (v) the income tax expense (benefit) of those adjustments, if any. We also deduct the contingent gains arising from earnout payments and project escrow releases relating to the disposal of our investment in an unconsolidated subsidiary and gains from change in fair value of our warrant liability from net loss in arriving at Adjusted Net Loss. Adjusted EPS is defined as Adjusted Net Loss on a per share basis using our weighted average diluted shares outstanding.

Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS are intended as supplemental measures of performance that are neither required by, nor presented in accordance with, U.S. generally accepted accounting principles (“GAAP”). We present Adjusted EBITDA, Adjusted Net Loss and Adjusted EPS, because we believe they assist investors and analysts in comparing our performance across reporting periods on an ongoing basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA, Adjusted Net Loss and Adjusted EPS to evaluate the effectiveness of our business strategies.

Among other limitations, Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS do not reflect (i) our cash expenditures, or future requirements, for capital expenditures or contractual commitments, and (ii) the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations. Further, the adjustments noted in Adjusted EBITDA do not reflect the impact of any income tax expense or benefit. Additionally, other companies in our industry may calculate Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS differently than we do, which limits its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP, and you should not rely on any single financial measure to evaluate our business. These non-GAAP financial measures, when presented, are reconciled to the most closely applicable GAAP measure as disclosed below: